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31 Cards in this Set
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 Back
Return on Total Assets(ROA) 
Net Income/ Total Assets; Profit Margin*Total Asset Turnover; ratio of net income to total assets 

Return on Common Equity(ROE) 
Net income/Common Equity; The ratio of net income to common equity; measures the rate of return on common stockholders' investment. 

Profit Margin; Net Profit Margin(NPM) 
Net income/Sales; measures net income per dollar of sales and is calculated by dividing net income by sales. 

Total Asset Turnover Ratio(TAT) 
Sales/Total Assets; Return on Total Assets/Profit Margin 

Equity Multiplier(EM) 
Total Assets/Common Equity; ROE/ROA 

Book Value per share 
Common Equity/Shares outstanding 

Market/Book(M/B) Ratio 
Market price per share/Book value per share; Ratio of a stock's market price to its book value. 

Price Earnings(P/E) Ratio 
Price per share/Earnings per share; ratio of price per share to earnings per share ; shows the dollar amounts investors will pay for 1 dollar of current earnings 

Earnings Per Share 
Net IncomeDividends on Preferred Stock/Average Outstanding Shares 

Total Debt to Total Capital(Debt Ratio) 
Total Debt/Total Capital= Total Debt/Total Debt+Equity 

Current Ratio 
Current Assets/ Current Liabilities; Indicates the extend to which current liabilities are covered by those assets expected to be converted to cash in the near future. 

Quick Ratio 
Current AssetsInventories/Current Liabilities 

Basic Earning Power(BEP) 
EBIT/Total Assets; This ratio indicates the ability of the firm's assets to generate operating income. 

Total Debt to Asset Ratio 
Total Liabilities/ Total Assets 

Inventory Turnover Ratio 
Sales/Inventories 

Days Sales Outstanding(DSO) ratio 
Receivables _________________ Annual Sales/365; Indicates the length of time the firm must wait after making a sale before it receives cash 

Window Dressing Techniques 
Techniques employed by firms to make their financial statements look better than they really are. 

Trend Analysis 
An analysis of a firm's financial ratios over time; used to estimate the likelihood of improvement or deterioration in its financial condition. 

Benchmarking 
The process of comparing a particular company with a subset of top competitors in their industry. 

DuPoint Equation 
A formula that shows the ROE can be found as a product of NPM, TAT, and the EM. It shows the relationship among asset management, debt management, and profitability ratios. 

Market Value Ratios 
Ratios that relate a firm's stock price to its earnings and book value per share. 

Return on Invested Capital(ROIC) 
EBIT(1T)/ Total Invested Capital; The ratio of AT operating income to total invested capital; measures the total return that the company has provided for investors. 

Operating Margin 
EBIT/Sales; Measures operating income, or EBIT, per dollar of sales 

Profitability ratios 
A group of ratios that show the combined effects of liquidity, asset management, and debt on operating results. 

Times Interest Earned(TIE) Ratio 
EBIT/Interest Charges; ratio of EBIT to interest charges; a measure of a firm's ability to meet its annual interest payments. 

Total debt to Total Capital

Total Debt/Total Capital= Total Debt/ Total Debt+Equity; ratio of total debt to total capital 

Debt Management Ratios 
A set of ratios that measure how effectively a firm manages its debts. 

Fixed Assets Turnover Ratio 
Sales/Net Fixed Assets; measures how effectively a firm uses its plant assets 

Asset Management Ratios 
A set of ratios that measure how effectively a firm is managing its assets. 

Liquidity Ratios 
Ratios that shows the current relationships between a firm's cash and other current assets to its current liabilities.


Liquid Asset 
An asset that can be converted to cash quickly without having to reduce the asset's price very much. 